Happiness, Contentment, and Other Emotions for Central Banks

Doctors sometimes ask their patients questions such as, " does it hurt? " Upon hearing these words, reasonable patients do not throw a fit, accuse the doctor of unscientific reliance on interpersonal comparisons of pain, and leave the hospital in disappointment. Presumably, they think these questions help doctors do their jobs. In contrast, economists are suspicious of such questions. Welfare also occupies a central role in their profession, with most papers in economics making some reference to individual utility. However, in their applied work, measures of utility (or of the emotions that are related to utility) are not common. One reason is that economists think that utility can be inferred through actions. For example, if the patient buys a banana rather than an apple, when both are available at similar prices and conditions, we make the inference that the patient likes bananas more than apples. Economists say that preferences have been " revealed " to them. In contrast to standard economics, happiness research takes the position that such an indirect approach to measuring utility is not necessarily always superior to an approach based on direct measures of utility or, more precisely, direct measures of the emotions that are related to utility. Several direct measures of these emotions can be constructed. One that appears promising and which has received some attention from economists is well-being data (sometimes loosely called " happiness data "). Examples include data on happiness (current mood), often captured by the answers to a simple survey question such as " Are you happy? " and data on contentment (a global judgment on how close we are to achieving " the good life "), often captured by the answers to a survey question such as " Overall, are you satisfied with your life? " Large datasets with well-Should Central Banks Maximize Happiness? 312 being measures, covering many countries and years, are widely available. Of course there are limitations to such data, so the question of how fruitful the approach is will typically depend on the context. In this paper we discuss some uses of well-being data for central banks. Before continuing it is worth pointing out that there are (at least) two different broad interpretations of well-being data. To economists trained to focus on utility, the natural interpretation is that well-being data are a proxy for utility. Indeed, this is the interpretation we follow in this paper. On the …